2025 (2) TMI 496 - HC - Income Tax

Reassessment notice quashed under Section 148 for interest-free loans due to adequate disclosure in original return

M/s. Prabhu Spinning Mills Private Limited, Represented by its Director Mr. P.S. Veluswamy Versus The Joint Commissioner of Income Tax, Circle – 1, Tirupur, Tamil Nadu

M/s. Prabhu Spinning Mills Private Limited, Represented by its Director Mr. P.S. Veluswamy Versus The Joint Commissioner of Income Tax, Circle – 1, ... The petitioner challenged an income tax notice issued under Section 148 for the assessment year 2013-14, along with the subsequent order overruling the objection to the reopening of the assessment completed under Section 143(3) of the Income Tax Act in 2015. The notice was based on interest-free loans given to related concerns while claiming interest on borrowed funds in the profit and loss account. The court considered whether the reopening of the assessment was justified and analyzed the legal framework, precedents, evidence, and reasoning provided by both parties.The petitioner argued that the reopening was contrary to Section 147 of the Income Tax Act as it was issued before 01.04.2021, despite adequate disclosure in the Return of Income regarding the interest-free loans. The petitioner highlighted disclosures in the balance sheet and profit and loss account, citing relevant case law supporting their actions. Additionally, the petitioner provided information on audit objections related to the interest-free loans.In response, the respondent defended the reopening, stating it was justified due to the lack of examination of certain issues during the initial assessment and the necessity for further information to be provided by the assessee. The respondent also mentioned the extension of deadlines by the CBDT as a factor in the case.The court found that the petitioner had made sufficient declarations in the returns filed before the assessment order was passed, indicating full disclosure of relevant information. The court considered the information obtained through RTI and concluded that the invocation of Section 148 was unwarranted. The court emphasized that unless there was a failure to disclose all material facts necessary for assessment, the reopening was not justified. Therefore, the court allowed the writ petition, quashing the impugned notice and speaking order.In conclusion, the court held that the reopening of the assessment was not justified based on the evidence and disclosures made by the petitioner, leading to the decision to quash the notice and order.